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Currency Stability Using Blockchain Technology

Author

Listed:
  • Bryan Routledge

    (Carnegie Mellon University)

  • Ariel Zetlin-Jones

    (Carnegie Mellon University)

Abstract

Arbitrary speculative attacks on currencies can arise from self-fulfilling expectations. This is a well-studied source of currency crises. In this paper, we show that blockchain distributed ledger technologies, such as those which support Bitcoin and Ethereum, can be adapted to eliminate self-fulfilling speculative attacks on a currency. We show how to develop a stable currency peg, such as Pesos to Dollars, using a cryptocurrency. We show the peg is immune to speculative attacks arising from self-fulfilling prophecies and estimate the size of reserves and transaction costs needed to support the peg.

Suggested Citation

  • Bryan Routledge & Ariel Zetlin-Jones, 2018. "Currency Stability Using Blockchain Technology," 2018 Meeting Papers 1160, Society for Economic Dynamics.
  • Handle: RePEc:red:sed018:1160
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    File URL: https://economicdynamics.org/meetpapers/2018/paper_1160.pdf
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    Cited by:

    1. Yukun Liu & Aleh Tsyvinski, 2019. "Risks and Returns of Cryptocurrency," 2019 Meeting Papers 160, Society for Economic Dynamics.
    2. Yukun Liu & Aleh Tsyvinski, 2018. "Risks and Returns of Cryptocurrency," NBER Working Papers 24877, National Bureau of Economic Research, Inc.

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